Pension agency settles with Aloha Air
The carrier is cleared to leave a yearlong bankruptcy this month
It took a last-minute phone call from a court's restroom corridor, but Aloha Airlines overcame more last-minute opposition from the federal pension agency and signed a settlement yesterday that clears the way for the carrier to emerge from bankruptcy in the middle of this month.
About four hours later, federal Bankruptcy Judge Robert Faris approved both the settlement and the airline's modified reorganization plan to effectively put an end to the 13-month-old bankruptcy case.
David Banmiller, president and chief executive of Aloha, said the airline had been spending $60,000 to $70,000 a day on loan interest and attorney and consultant fees, and now management can focus on customer service and improving the airline. He declined to pinpoint a specific date for exiting bankruptcy.
Banmiller said he also was being pressured from Aloha's two lenders, Goldman Sachs and Ableco Finance LLC, who on Jan. 10 began reducing their loan exposure to Aloha by $200,000 a day, reducing the amount of liquidity available to the airline. Moreover, the Federal Reserve's decision to raise interest rates on Tuesday had boosted Aloha's interest payments to its lenders to 15 1/2 percent, or $28,000 a day.
"We were on a timeline because our economic situation needed to be satisfied," Banmiller said.
Under the modified reorganization plan, Aloha's unsecured creditors will get virtually nothing -- nearly the reverse of the 26-month Hawaiian Airlines bankruptcy, where creditors got paid in full. Aloha's unsecured creditors will receive 1/100th of a cent on the dollar compared with 86/100th of a cent on the dollar under the original plan.
Faris agreed with Aloha that it was impractical to delay yesterday's hearing to have unsecured creditors vote again on the reduced amount, since they had previously rejected the higher amount. The plan was confirmed the first time because other classes of creditors voted for it.
Banmiller, who had been hoping to get the airline out of bankruptcy in less than a year, nearly met his objective but was still happy.
"We got a bump along the way, but we did it," he said.
The bump came when the federal Pension Benefit Guaranty Corp. appealed the confirmation of Aloha's reorganization plan shortly before Dec. 15, when Aloha had planned to emerge from bankruptcy. The carrier filed for Chapter 11 protection from creditors on Dec. 30, 2004.
Until PBGC attorney Stephen Schreiber made the call yesterday morning to the agency's executive director, Brad Belt, it appeared that Aloha's attempt to get out of reorganization would be quashed again. The pension agency, which had reached a tentative settlement with Aloha in December, filed a motion before the hearing yesterday to oppose the confirmation of Aloha's reorganization plan, saying the airline repeatedly had sought modifications and additions to the agreement in principle.
"One thing the PBGC wants to make clear is the principle that we've been fighting for all along, which is that companies cannot merely transfer their pension plans to the PBGC as a matter of convenience or because an investor desires it," PBGC spokesman Randy Clerihue said. "You have to meet legal criteria ... which we don't think (Aloha was meeting) earlier on in this case."
The agreement with the federal agency calls for Aloha to keep a pension plan covering 28 employees in the Transport Workers Union but terminate three other pension plans covering the Air Line Pilots Association, the International Association of Machinists and Aerospace Workers, and nonunion employees. The pilots and machinists, who both had "me too" clauses in their new contracts that called for all the union pension plans to be treated the same, waived that provision to get the settlement approved.
In return, the pension agency agreed not to file any more appeals, and Aloha agreed to pay the agency $1.25 million to satisfy its administrative and priority bankruptcy claims. In addition, Aloha agreed to allow the PBGC to have unsecured claims of $154.4 million against the carrier for the terminated pension plans. The agency would be paid on a pro-rata basis with other unsecured creditors and would get 70 percent of the available proceeds.
Banmiller said all systems are now go for Aloha, which has been infused with $63 million in cash from its new investors, including Yucaipa Corporate Initiatives Fund I LP, headed by billionaire grocery magnate Ronald Burkle, and Aloha Aviation Investment Group, led by former National Football League star Willie Gault.
They will be joined by the Ing family partnership of Richard Ing and his sister, attorney Louise Ing Stich, both of whom are among the current owners of the airline; Hawaii developer Stanford Carr; Duane Kurisu, who has Hawaii commercial real estate and communications holdings; and Colbert Matsumoto, president of Island Holdings Inc. Kurisu and Matsumoto are board members of Oahu Publications Inc., publisher of the Honolulu Star-Bulletin and MidWeek.
GMAC, the finance arm of General Motors, is putting in $750,000 in cash.
Aloha said it will have available $35 million in exit financing but it plans to draw only $15 million of that.
"For '06, our plan is to stabilize with our new capital structure, which is going to be fabulous," Banmiller said. "We're going to have one of the best capital structures in the industry on (an equity-debt) ratio basis and focus on blocking and tackling and working with our employees who have gone through a lot this past year. There's no question ... our new ownership structure wants us to grow."